The National Labor Relations Board, the federal government’s main labor law enforcement agency, issued a sweeping ruling Thursday expanding when a business can be held legally liable for the labor violations caused by a subcontractor.
The five-member board voted 3-2 along party lines in the case, known as “Browning-Ferris Industries.” The ruling was slammed by business groups and cheered by organized labor.
The board said the change was meant to update the National Labor Relations Act, the main federal law covering manager-employee relations.
“With more than 2.87 million of the nation’s workers employed through temporary agencies in August 2014, the board held that its previous joint employer standard has failed to keep pace with changes in the workplace and economic circumstances,” the board said.
Business groups and the labor movement had been anxiously waiting on the ruling for months. The NLRB is expected to release another major ruling further redefining the joint employer standard later this year in a case involving whether McDonald’s Corp. is a joint employer with its franchisees.
The board had previously held strict requirements for the “joint employer” determination, limiting it to cases in which both companies had direct involvement in the day-to-day management of employees.
Thursday’s ruling loosened the rule, substantially, extending the label to arm’s-length relationships between contractors and subcontractors.
“In evaluating whether an employer possesses sufficient control over employees to qualify as a joint employer, the board will — among other factors — consider whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so,” it said.
Business groups reacted angrily, saying the ruling was little more than a sop to organized labor.
“The NLRB today satisfied the politically motivated requests of organized labor and manufactured a new joint employer standard that small businesses have long been bracing for. In doing so, the board ignored decades of judicial precedent and bipartisan policy agreement dating back to the Johnson administration to invent new labor law,” said Steve Caldeira, president of the International Franchise Association.
David French, senior vice president for government relations for the National Retail Federation, called the ruling a “roadblock” to job creation.
“This is further evidence that the NLRB has given up its position as an objective arbiter of workplace issues and sees itself as an advocate for organized labor as a means of imposing new workplace obligations and legal liabilities on well-known corporations,” French said.
Browning-Ferris involved a California recycling company by that name that subcontracted some of its work at a facility in Milpitas, Calif., to Leadpoint, an Arizona company. Leadpoint’s employees are represented by the Teamsters.
In 2013, the union said Leadpoint had violated workers’ rights by firing them at the behest of Browning-Ferris managers and named the company as a “joint employer” in its complaint to the NLRB. In essence, the union was saying the workers had to answer to two sets of bosses so both were equally liable.
A regional director for the NLRB rejected the argument in August 2013, determining that while Browning-Ferris had input regarding the workers, Leadpoint was still the one making the actual decisions.
The following year, the full board granted the union’s appeal and made a public request for interested parties to submit legal briefs regarding “whether … the board should adhere to its existing joint employer standard or adopt a new standard.”
Later that year the board filed its complaint against McDonald’s Corp., asserting that it was a joint employer at all of its local franchises, despite the fact that a vast majority of the restaurants are privately owned businesses that rent out the McDonald’s name and brand. That case is ongoing.
While the McDonald’s case has garnered more headlines, business groups have seen Browning-Ferris as the more impactful of the two cases. Business lawyers for the groups feel confident that if the board finds McDonald’s to be a joint employer that they could win a court challenge.
The lawyers are less confident that they could win a challenge to Browning-Ferris. Subcontractors must work according to the terms of the contractor,so there is a direct line of authority between the two. That creates a high bar to challenge the ruling since courts usually defer to agencies.
